College costs continue to climb annually, which sparks concern among many parents, including myself. We do not want our children to be burdened with significant student loan debts. But fret not, if saving up for your child’s ideal college seems challenging. There are numerous affordable online colleges available that have impressive graduation rates.
Currently, the average cost for an undergraduate year ranges between $20,000 and $50,000, depending on whether the institution is private or public. If you aim to financially secure your child’s college journey, it is admirable but it’s crucial to balance your overall financial commitments, such as funds for retirement.
When faced with the saving challenge of retirement or college, I will always lean towards the retirement side, primarily for the following reasons:
RETIREMENT DOESN’T OFFER A LOAN OPTION
Having experienced student loan debt and successfully paid it off, I wouldn’t want my child to experience the same. It could potentially hinder financial growth and personal life progression. However, surviving through it, just like others, made me stronger in a unique way. It was the stepping stone that helped me start my blog and propelled my career.
But, it’s vital to understand that while student loans are available, retirement doesn’t offer a loan option. Once you decide or are forced to quit working due to health issues, without a nest egg for retirement, you’d be out of luck. At this time, having to bear debts, personal loans, and credit cards or relying on your children for sustenance would be your last choice.
I am determined to avoid being a burden for my son as he matures, even if it means I can’t fully fund his college fees. My goal is to be financially self-reliant to assist him in other aspects and support myself.
MISSING OUT ON COMPOUND INTEREST
Compound interest can be a powerful instrument in growing your financial wealth. It refers to the interest added to the principal amount of a loan or deposit, commonly known as ‘interest on interest.’ When interest begins to accrue to an amount and turns into interest itself, it causes the balance to grow—a beneficial element in your retirement savings, if you start early.
Let’s consider you contribute $10,000 one year with an average growth rate of 6% each year. Consistent investments of about $500 per month and a retirement plan of 35 years would yield a substantial amount of approximately $797,152.44, offering considerable growth and security. However, if we deviate this money towards college savings during prime earning years, the growth could be compromised.
Starting retirement savings at 45 would not garner the same growth as someone who begins at 25 or 30—time lost that cannot be regained. If you do not wish to work in your 60s and 70s, prioritizing your nest egg over college savings is advised.
Alternatively, college affordability can be tackled by juggling work along with college, seeking scholarships and grants, or facilitating a job for your child during their college years. Scholarships and grants are often overlooked but can provide significant financial relief.
In conclusion, while numerous options exist to make college more affordable, saving and investing for retirement is singularly paramount for wealth creation. Prioritize laying the groundwork for your financial future before doing so for your children. It is akin to the airplane safety protocol of donning your oxygen mask before assisting your child. If you’re financially stretching yourself thin, your ability to aid others is compromised. Therefore, only consider setting aside college funds after ensuring steady retirement contributions.
Discuss finances and higher education options with your children in advance to set realistic expectations. Depending on your circumstances, you could assist by letting them live rent-free in your house during community college, set up a college savings fund they can contribute to, or help with expenses like books and fees. Together, you can explore scholarship and grant opportunities, or even devise passive income streams to cater to college expenses.
Are your savings focused on college or retirement, and why? Have you commenced your retirement savings?
